Rahul Bajaj hoped that at the forthcoming board meet of the central board of the RBI on November 19, the regulator and government will reconcile by ceding some space, but made it clear that if Section 7 is invoked, Urjit Patel has no other option but to resign.

Reserve Bank of India Governor Urjit Patel. (Image: AP)

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Mumbai: Lauding governor Urjit Patel for staunchly defending the autonomy of the central bank, industry doyen Rahul Bajaj on Thursday said the government should not force its decisions on the Reserve Bank by invoking the never-used Section 7.

He hoped that at the forthcoming board meet of the central board of the RBI next Monday (November 19), the regulator and government will reconcile by ceding some space, but made it clear that if Section 7 is invoked, Patel has no other option but to resign.

"If the government wants to stick (to its guns), then the matter will heat up. If RBI or Urijit Patel also sticks (to his own stand), and if government invokes Section 7, then it means, according to me, Patel has to resign," he told reporters.

"Why did Section 7 come up if you two agree? If they are not listening to you, then you (Patel) should go. I am not against Patel at all," he said while speaking on the sidelines of the annual Jamnalal Bajaj Awards instituted by the group to recognise the work of individuals in diverse social and cultural fronts.

Patel's recent posturing also came up for appreciation from the veteran industrialist. "The point is he (Patel) has shown some spine at last. It was not there earlier," he said and noted that Patel succeeded Raghuram Rajan.

As part of the reconciliation process, each side will have to cede a bit, he said, adding RBI should make concessions on two of the most contentious issues by giving more money to small businesses and liberalising the prompt corrective action framework on 11 state-run banks.

Underlining that the central bank's autonomy is paramount, Bajaj said, "nobody across the world disputes the need for autonomy and independence of the regulatory bodies. (But) that does not mean India can go to the dogs! (by starving the industry of funds)".

Wading into the debate started by finance minister Arun Jaitley, Bajaj said the elected Parliament is "supreme" and therefore, there is a talk of invoking Section 7, which has never been used in the RBI's over 83-year-old history.

"I very much hope the independence of RBI will be retained, and Section 7 will not be resorted to," he said, adding there cannot be 100 per cent agreement at the board on certain aspects.

Bajaj said the "rightist and pro-government" S Gurumurthy, who is reportedly triggered turf war between the two, is "very knowledgeable and sensible", even though one may not agree with all his views.

Relations between RBI and finance ministry soured in the past month after North Block started consultations under the never-used Section 7 of the RBI Act which allows the government to direct RBI to undertake certain measures "in public interest".

According to sources, the government has sent three letters to RBI on October 10, with nearly a dozen demands, which were replied to within a week by the central bank.

Government primarily wants RBI to help the struggling non-bank lenders get some liquidity support, liberalise the prompt corrective action norms on 11 banks and undertake other steps which will help spur growth, while RBI is said to be taking a conservative view on most of it and avoiding any bad precedents.

RBI's perceived excess capital is also a contentious issue with reports saying the government is eyeing Rs 3.6 trillion of the over Rs 9.7 trillion of its reserves.

Denying any such demand, economic affairs secretary SC Garg had last week said the attempt was to have a discussion on the "appropriate economic capital framework" for RBI.

The central bank took its reservations on the various issues public in a speech by deputy governor Viral Acharya on October 26, wherein he warned of investors' wrath if RBI's autonomy is compromised. The speech was delivered after an allegedly tumultuous RBI board meeting on October 19.

After reports of invocation of under Section 7 came up, the government had tried to ease tension by stating that autonomy is "essential" and an accepted governance requirement.

However, Garg had also mocked the "wrath-of-the-markets" remark by Acharya, pointing out to the improvements in financial markets since the speech.

About his expectations from the forthcoming general elections, Bajaj said we need a strong government and also a united Opposition.

He also welcomed the work done by NDA government on various fronts and decried those who criticise it for advertising its work.

Bajaj said despite its best intentions, the UPA regime could not eradicate poverty or end other social issues on multiple fronts, including gender and added that such work takes time.

Addressing the awardees, Bajaj lashed out at the rising inequalities in the society, stating that it is worse than poverty and warned that the bitterness that comes in a person struggling to get his day's meal on seeing an opulent wedding will lead to a "revolution".

Bajaj also made his displeasure at the laws created following the fleeing of willful defaulters and fraudsters by Sebi and the corporate affairs ministry.